Job Losses Swell Past Million, Signalling Deepening Recession

By Bob O'Brien

FUTURES TAKE SOME HEART IN PROSPECTS OF MORE RATE CUTS

If the classicist’s definition of economic conditions can be taken to heart – that, as The Great Communicator said, ”A recession is when your neighbor loses his job. A depression is when you lose yours.” – then it’s going to be getting awfully hard to keep from throwing the D-word around to describe conditions in the U.S.

The U.S. economy has lost more than 1 million jobs this year – 1.18 million, to be exact. Six-and-a-half percent of our labor force is more likely to be collecting unemployment benefits than a paycheck. Although, with the job contraction entering its 10th month – and with a full head of steam – those former workers are facing the end of their government checks.

The deterioration in labor conditions accelerated as decline stretched out. Job losses in September actually totalled 284,000 – 78% more than the 159,000 losses the government guestimated last month. November losses stretched to 240,000 on top of that, brining the unemployment rate to 6.5% – the steepest since March 1994.

The implications for the equities market aren’t as dire as the rational individual might have thought. Of course, the stock market did a pretty good job of discounting a dismal economic reading, with the S&P 500 sinking 100 points in just the last two trading days. Stocks suffered their worst two-day percentage loss since October 1987. Whatever measure of enthusiasm there is out there, with S&P futures up a narrow five points or so, is some measure of gallows humor, as investors figure the dismal economic data is going to translate into further interest-rate reductions next month. The Fed funds futures trading has suggested there is an 84% likelihood the central bank will cut rates by 50 basis points at its December policy meeting, which would bring the Fed funds target to a Bank-of-Japan-like half-a-percentage point.

Two-year Treasuries have given up some early gains, after the yield on the note had dropped by 25 basis points. The three-month dollar LIBOR continued its decline, down another 10 basis points to below 2.3%, the lowest reading in four years. The TED spread – the difference in cost of three month loans versus Treasuries – dropped below 200 basis points, the first time that’s happened since Lehman surrendered in mid-September.

Nevertheless, the market hasn’t taken a real quantum of solace from central banks’ efforts to resuscitate the credit markets and the financial system. Despite the aggressive 150 basis point rate cut engineered by the Bank of England Thursday, as well as the cut orchestrated by the European Central Bank, banks simply haven’t heard the gospel of better living through lending. In fact, the ECB has suggested it would consider lowering deposit rates as a means of disincenting banks from parking cash in its coffers. Already, the overnight deposits base at the ECB has topped 200 billion euros (that’s about $250 billion American) or more than four times the average. Meanwhile, South Korea’s central bank cut rates in that country to 4% Friday, the third time it’s reduced borrowing terms in just four weeks.

Heading into the final session of the week, it’s difficult to imagine equities sustaining the early advance through the closing bell – although we state that with the knowledge that this hasn’t been the kind of market that’s been very rewarding to forecasters. Barack Obama will address the nation later this afternoon, and chances are that the President-elect who secured the campaign success on the promise of remedying economic woes is likely to address those issues. Nevertheless, in market conditions that feel a lot more like September and October than they do the cusp of Thanksgiving, investors are likely to feel a little hesitant about extending any enthusiasm over a weekend that could be freighted with more big developments.

[...] guy will out perform his hero, Business Guru George the MBA. A headline from Barron’s today, Job Losses Swell Past Million, Signalling Deepening Recession. This, 2001-07: Weakest Post WW2 Recovery on Record and this, US President George W. Bush, saying [...]

NOVEMBER 20, 2008 1:39 P.M.

DDDepressionnn wrote:

There has come winter
It became cold and cloudy!
Mood very bad
Depression Begins

NOVEMBER 29, 2008 10:34 A.M.

wintervssummer wrote:

I very much love summer
Someone very much loves winter
I Wish to know whom more
For what you love winter?
For what you love summer? Let's argue

About Stocks To Watch

Earnings reports, corporate strategies and analyst insights are all part of what moves stocks, and they’re all covered by the Stocks to Watch blog. We also look at macro issues, investor sentiments and hidden trends that are affecting the market. Stocks to Watch gives you the full picture of the U.S. stock markets, all day long.

The blog is written by Ben Levisohn, a former stock trader who has covered financial markets for the Wall Street Journal, Bloomberg and BusinessWeek.